1
Interim Report
Second quarter, 2016Chief Executive's comments
All-time high operating profit for a second quarterAgain, a record-high operating profit was achieved with a continued double-digit year- on-year improvement for the Group.
Operating profit reached SEK 368 million (326 excluding non-recurring items), an improvement of 13 percent compared to the corresponding quarter in 2015. The currency translation impact was negative SEK 8 million (positive 39), mainly related to Food Ingredients.
Food Ingredients reported a strong quarter due to a further improved product mix and positive contributions from recent acquisitions.
Chocolate & Confectionery Fats reported an impressive quarter with high single-digit volume growth and a double-digit profit growth.
Techical Products & Feed reported a good quarter, however, with a mixed picture between the segments.
Total volumes continued to grow nicely and were up 6 percent (12). Organic volume growth was 1 percent (last year 4 percent) despite continued declining commodity volumes in Food Ingredients, where the growth in 2015 was exceptional. However, the demand for speciality and semi-speciality products was strong, generating organic volume growth of 5 percent (3).
Business area operating profit:
Food Ingredients improved by 8 percent, reaching SEK 238 million (221).
Chocolate & Confectionery Fats reported a result of SEK 146 million (116), an improvement of 26 percent.
Technical Products & Feed improved by 5 percent, reaching SEK 23 million (22).
Operating profit per kilo reached SEK 0.78 (0.73 excluding non-recurring items). The currency translation impact was negative SEK
0.02 (positive 0.09).
Operating profit per kilo in Food Ingredients increased from SEK 0.71 to SEK 0.74, mainly as a consequence of the improved product
mix. At fixed foreign exchange rates operating profit per kilo improved by 7 percent.
Operating profit per kilo for Chocolate & Confectionery Fats improved strongly and reached SEK 1.76 (1.61), an improvement of 9 percent.
Technical Products & Feed reported a stable operating profit per kilo, SEK 0.35 (0.35).
Earnings per share increased by 2 percent, to SEK 5.47 (5.38). Increased financial costs due to extended borrowings in high-interest rate countries (Brazil, China and India) had a very unfavorable impact on earnings per share.
Sales amounted to SEK 5,090 million (4,954). The increase was mainly due to the positive product mix, partly offset by a negative currency translation impact of SEK 221 million, and the effect of acquisitions.
Food IngredientsThe demand for speciality and semi-speciality products was good, generating organic volume growth of 3 percent (4). The picture between the different segments was mixed though.
The Bakery segment had another challenging quarter globally. Volumes continued to decline, although at a slower pace than during the first quarter 2016.
The Dairy segment continued the strong trend from the last three quarters and reported double-digit organic volume growth despite the very low prices on milk fat. North Latin America, the U.S. and the Nordics showed particularly strong growth in this segment.
Infant Nutrition reported a strong volume development. This was driven by product range Akonino®, which showed an impressive double-digit volume growth.
Foodservice reported organic volume growth with good development particularly in the U.K. and the U.S. Volumes in the Nordics were stable.
Commodity products showed a negative volume development after an exceptional growth in 2015.
Chocolate & Confectionery Fats Total volumes increased by 15 percent (negative 3). Organic volume growth in the quarter was 11 percent (negative 3).Organic volume growth within high-end products continued during the second quarter. After some challenging quarters, low-end products were also back to organic volume growth.
After two years of severely deteriorating market conditions in Russia and Ukraine, the strong growth in the first quarter continued also during the second quarter, but still from a low level.
Cash flowOperating cash flow including changes in working capital amounted to SEK 520 million (389). Cash flow from working capital was positive, amounting to SEK 158 million (83). The strong improvement in working capital was mainly related to good inventory management and increased accounts payables. This was despite the negative impact from substantially increased raw material prices during the last quarters, combined with working capital tied up for the two greenfield investments. The greenfield investments will continue to have a negative impact on working capital during 2016.
Return on Capital Employed (ROCE) Calculated on a rolling 12 months basis, Return on Capital Employed (ROCE) was 16.0 percent (15.7 at December 31, 2015). ROCE improved despite being negatively effected by higher working capital due to increased raw material prices, initial greenfield investments in Brazil and China, and acquisitions. The ROCE for the second quarter was 15.2 percent compared to 15.6 percent for the corresponding quarter 2015. Acquisition of California Oils CorporationAAK has after the balance sheet date acquired the leading West Coast based vegetable oils company California Oils Corporation from Mitsubishi Corporation of Japan. California Oils Corporation, also known as CalOils, had last year revenues of approximately SEK 1,350 million and a volume of approximately 110,000 MT, with 65 employees.
A strong presence on the U.S. West Coast has been priority for AAK since several years. The
West Coast encompasses 20 percent of the
population and this expansion has been identified as an important component of AAK's long-term growth strategy. The acquisition of CalOils will transform AAK into a true national speciality and semi-speciality edible oils company in the U.S.
Greenfield investmentsDuring the second quarter we have inaugurated our new factory in Brazil. Some limited volumes have been delivered. To be able to deliver the whole product range a gradual ramp-up will continue during the coming quarters.
Our China greenfield project continues to develop according to plan.
BrexitIn regards to Brexit and the UK's EU referendum, our initial assessment is that this will have a limited effect on AAK's operations and results. Nearly all products coming from our UK factories are produced for local customers producing for the local market.
There will also be a continued demand for healthy and cost efficient solutions. A limited portion of our production at our UK factories is exported to other countries and here the weaker sterling will bring some limited advantages. Less than 7 percent of the AAK Group's operating profit is generated in the UK.
AAKtionOur company program for 2014-2016, "AAKtion", is developing according to plan. The program is intended to further strengthen the focus on "Sales-Innovation-Execution".
Concluding remarksBased on AAK's customer value propositions for health and reduced costs, and our customer product co-development and solutions approach, we continue to remain prudently optimistic about the future.
The main drivers are the continued positive underlying development in Food Ingredients and a continued improvement in Chocolate & Confectionery Fats.
Arne Frank
Chief Executive Officer and President
Financial highlights and key ratios
SEK million (unless otherwise stated)
Q2 2016
Q2 2015
%
Q1-2 2016
Q1-2 2015
%
Full year
2015
Income statement
Volumes ('000 MT)
471
446
+6
938
889
+6
1,833
Operating profit excluding non-recurring items Operating profit including non-recurring items
368
368
3261)
3391)
+13
+9
749
749
6471)
6601)
+16
+13
1,4112)
1,4092)
Net profit
241
229
+5
490
445
+10
945
Financial position
Total assets
14,245
12,616
-
14,245
12,616
-
13,896
Equity
6,765
6,220
-
6,765
6,220
-
6,650
Net working capital
3,221
3,208
-
3,221
3,208
-
3,087
Net interest-bearing debt
2,342
2,032
-
2,342
2,032
-
2,083
Cash flow
EBITDA
Cash flow from operating activities
482
520
445
389
+8
-
975
504
871
817
+12
-
1,840
1,736
Cash flow from investing activities
-194
-74
-
-386
-234
-
-1,016
Free cash flow
326
315
-
118
583
-
720
Earnings per share
Earnings per share before dilution, SEK
5.47
5.38
+2
11.03
10.49
+5
22.17
Earnings per share after dilution, SEK
-
5.36
-
-
10.44
-
22.12
Key figures
Volume growth, %
+6
+12
-
+6
+11
-
+8
Operating profit per kilo (excl. non-recurring costs), SEK
0.78
0.73
+7
0.80
0.73
+10
0.77
Return on Capital Employed (R12 months), %
16.0
15.9
+1
16.0
15.9
+1
15.7
Net debt / EBITDA, multiple
1.20
1.15
+4
1.20
1.15
+4
1.13
As a result of the sale of the company's office building in M.P. Bruuns Gade, Aarhus, Denmark, a net profit of SEK 45 million was recorded during the second quarter 2015. At the end of the second quarter 2015 an assessment of previously made non-recurring provisions, and during the last few quarters communicated, has resulted in increased provisions of SEK 32 million. A non-recurring, net positive impact of SEK 13 million has been reported in the Income Statement on page 12.
Non-recurring items for the full year 2015 amounted to negative SEK 2 million and consist of acquisition costs of SEK 15 million and SEK 45 million in net profit as a result of the sale of the company's office building in M.P. Bruuns Gade, Aarhus, Denmark. An assessment of previously made non-recurring provisions has resulted in increased provisions of SEK 32 million.
525
500
Quarter, '000 MT
425
400
375
350
325
300
275
250
AAK Group - Volume475
350
450
1 700
325
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 12 12 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16
Quarter Rolling 12 months
1 900
1 800
1 600
1 500
1 400
1 300
1 200
400
Rolling 12 months, '000 MT
375
Quarter, SEK million
300
275
250
225
200
175
150
AAK Group - Operating profitQ2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 12 12 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16
Quarter Rolling 12 months
1 600
Rolling 12 months, SEK million
1 500
1 400
1 300
1 200
1 100
1 000
900
800
0,90
0,80
Quarter, SEK/Kg
0,70
0,60
0,50
0,40
0,30
AAK Group - Operating profit per kiloQ2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 12 12 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16
Quarter Rolling 12 months
0,90
0,80
0,70
0,60
0,50
0,40
0,30
Rolling 12 months, SEK/Kg
18,0%
16,0%
14,0%
12,0%
10,0%
Return on Capital Employed - Rolling 12 monthsQ2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 12 12 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16
AAK AB published this content on 15 July 2016 and is solely responsible for the information contained herein.
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